Identifier
Created
Classification
Origin
07CARACAS1281
2007-06-26 20:44:00
CONFIDENTIAL
Embassy Caracas
Cable title:  

EXXONMOBIL AND CONOCOPHILLIPS EXIT VENEZUELA

Tags:  EPET ENRG EINV ECON VE 
pdf how-to read a cable
VZCZCXRO6479
RR RUEHDE
DE RUEHCV #1281/01 1772044
ZNY CCCCC ZZH
R 262044Z JUN 07
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 9113
INFO RUEHHH/OPEC COLLECTIVE
RUEHAC/AMEMBASSY ASUNCION 0832
RUEHBJ/AMEMBASSY BEIJING 0336
RUEHBO/AMEMBASSY BOGOTA 7384
RUEHBR/AMEMBASSY BRASILIA 5942
RUEHBU/AMEMBASSY BUENOS AIRES 1627
RUEHLP/AMEMBASSY LA PAZ 2535
RUEHPE/AMEMBASSY LIMA 0807
RUEHNY/AMEMBASSY OSLO 0102
RUEHOT/AMEMBASSY OTTAWA 0846
RUEHFR/AMEMBASSY PARIS 0495
RUEHSP/AMEMBASSY PORT OF SPAIN 3429
RUEHQT/AMEMBASSY QUITO 2627
RUEHSG/AMEMBASSY SANTIAGO 3953
RUEHDG/AMEMBASSY SANTO DOMINGO 0453
RUEHIN/AIT TAIPEI 0024
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RHEHAAA/WHITEHOUSE WASHDC
RHEBAAA/DEPT OF ENERGY
RUCNDT/USMISSION USUN NEW YORK 0868
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
RHEHNSC/NSC WASHDC
C O N F I D E N T I A L SECTION 01 OF 04 CARACAS 001281 

SIPDIS

SIPDIS

ENERGY FOR CDAY AND ALOCKWOOD
NSC FOR DTOMLINSON AND JSHRIER

E.O. 12958: DECL: 01/12/2017
TAGS: EPET ENRG EINV ECON VE
SUBJECT: EXXONMOBIL AND CONOCOPHILLIPS EXIT VENEZUELA

REF: A. CARACAS 1157

B. CARACAS 1241

C. CARACAS 426

D. CARACAS 1197

E. 5/25 FLATT-VENEZUELA DESK E-MAIL

Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D)

C O N F I D E N T I A L SECTION 01 OF 04 CARACAS 001281

SIPDIS

SIPDIS

ENERGY FOR CDAY AND ALOCKWOOD
NSC FOR DTOMLINSON AND JSHRIER

E.O. 12958: DECL: 01/12/2017
TAGS: EPET ENRG EINV ECON VE
SUBJECT: EXXONMOBIL AND CONOCOPHILLIPS EXIT VENEZUELA

REF: A. CARACAS 1157

B. CARACAS 1241

C. CARACAS 426

D. CARACAS 1197

E. 5/25 FLATT-VENEZUELA DESK E-MAIL

Classified By: Economic Counselor Andrew N. Bowen for Reason 1.4 (D)


1. (C) SUMMARY: The BRV held a signing ceremony on June 26 to
convert the remaining private sector oil projects into
PDVSA-controlled joint ventures. Representatives from
Chevron, Total, Statoil, BP, ENI, Inelectra and Sinopec
signed memorandums of understanding (MOU) for their
respective investments. ExxonMobil (XM) and ConocoPhillips
(CP) did not sign the agreements and will exit Venezuela.
Both companies will continue negotiating with the BRV on
compensation for lost investments. Petrocanada will also be
exiting Venezuela as well. CNPC did not sign an MOU at the
ceremony but Energy Minister Ramirez indicated that the door
was still open for them to form a joint venture for their
investment. END SUMMARY

--------------
SIGNING CEREMONY
--------------

2. (C) Energy Minister Rafael Ramirez presided over a signing
ceremony on June 26 to convert private sector oil projects
into PDVSA-controlled joint ventures. Energy Vice Minister
Bernard Mommer and CVP president Eulogio Del Pino attended
the ceremony as well as the Norwegian ambassador.
Representatives from Chevron, Total, Statoil, BP, ENI,
Inelectra, and Sinopec signed MOUs for the migration of their
respective investments. As reported in Reftels A and B, the
BRV presented oil companies with a MOU and an underlying
conversion contract. During the ceremony, BRV officials
referred only to an MOU. Based on the context of their
remarks, we are assuming the companies signed off on both
documents. The documents will be submitted to the National
Assembly for approval. The deadline for approval under the
nationalization decree is August 26.


3. (C) The ceremony was surprisingly low-key. Ramirez began
his remarks by stating the migration was a culmination of the

process begun by the promulgation of the nationalization
decree in February (Reftel C). He stated the BRV looked
forward to working with the assembled companies for the next
30 years or more. Ramirez ended his remarks by stating the
BRV remained open to dialogue with companies that did not
sign the MOU. In comments to the media after the ceremony,
Ramirez appeared to set an August 26 deadline for terminating
the negotiations on outstanding issues.


4. (C) Four companies did not sign MOUs: XM, CP,
Petrocanada, and CNPC. Both XM and CP told Post that they
would not be signing the documents on June 25. Details
regarding their decisions and their next steps are set out in
paragraphs 9-15 below. CNPC's decision not to sign was
somewhat surprising. Industry insiders believed the Chinese
would eventually sign for geopolitical reasons. XM
Government Relations Manager Carlos Ernesto Rodriguez
(strictly protect throughout) told Petroleum Attache (Petatt)
on the morning of June 26 that he received a call from CNPC
stating that they were going to continue negotiating and were
going to meet with BRV officials roughly two and one-half
hours before the signing ceremony. During the ceremony,

CARACAS 00001281 002 OF 004


Ramirez was somewhat vague on the subject of CNPC. He stated
the parties to the Sinovensa project had signed an agreement
to complete the original terms of the project and that a new
agreement forming a joint venture would be submitted to the
National Assembly. The new joint venture would be in the
spirit of agreements signed between the Venezuelan and
Chinese governments. As reported in Reftel D, CNPC officials
have complained bitterly about the migration and their
treatment by the BRV.


5. (C) Chevron President Ali Moshiri attended the ceremony
and sat on the stage with the other company representatives.
However, he did not sign Chevron's MOU during the televised
ceremony. We are not sure why. Moshiri told Petroleum
Attache on June 25 that he would sign the MOU and give a
short five to ten minute speech at the ceremony. We are
assuming Moshiri signed the document in private.

--------------
WHO HAS WHAT
--------------

6. (C) Ramirez stated PDVSA's average share in the four
Faja projects will rise from 39% to 78% as a result of the
migration. The four projects will now have the following
equity distributions: Sincor (PDVSA 60%, Total 30.3%,
Statoil, 9.7%) Petrozuata (PDVSA 100%),Ameriven (PDVSA 70%,
Chevron 30%) and Cerro Negro (PDVSA 83.3%, BP 16.7%). As a
result of the departures of XM and CP, neither Chevron or BP
suffered a diminution in their stakes in their respective
strategic associations.


7. (C) Ramirez also announced that the size of the strategic
association's blocks were to be reduced. Sincor's block will
be reduced from 500 square kilometers to 399, Hamaca's from
650 square kilometers to 463, and Cerro Negro from 300 to 210
square kilometers. Ramirez did not mention any changes to
Petrozuata's acreage. He also stated the new joint ventures
would have to have a minimum recovery rate of 20%.


8. (C) As for the profit sharing agreements, PDVSA will
control 100% of La Ceiba. Ramirez stated PDVSA would take a
74% stake in the Corocoro project and ENI would have a 26%
stake. It is not clear if Ramirez was referring to the Golfo
de Paria Oeste (Corocoro) project alone or in conjunction
with the Golfo de Paria Este project. PDVSA and Eni had
stakes in both projects. Ramirez also announced that PDVSA
would have a 60% stake in the Posa field with Sinopec taking
a 32% stake and Eni a 8% share. (COMMENT: Ramirez' commments
regarding the profit sharing agreements are confusing. It is
not clear if he was treating the Golfo de Paria projects
separately or as a single unit. In addition, there has been
some confusion over whether the Posa field was part of Golfo
de Paria Este or a separate development. Sinopec signed a
document with the Energy Ministry in August 2006 giving it
rights in the development of the Posa oil field, which is
located east of the Gulf of Paria. In addition, a small
Taiwanese company, OPIC, had minor stakes in both Golfo de
Paria Este and Oeste. The company did not appear at the
signing ceremony and it is not clear what their status is in
Venezuela. END COMMENT)

--------------
XM SAYS ENOUGH IS ENOUGH
--------------

9. (C) Tim Cutt (strictly protect throughout),president of

CARACAS 00001281 003 OF 004


XM Venezuela, called the Ambassador on June 25 to inform him
that XM will be withdrawing from Venezuela (Reftel E). Cutt
met with Energy Vice Minister Bernard Mommer the evening of
June 24 to inform him that XM would not be signing the MOU
and conversion contract for its Cerro Negro strategic
association and the La Ceiba profit sharing agreement field.
(NOTE: XM had a 41.67% stake in Cerro Negro and a 50% stake
in La Ceiba. END NOTE).


10. (C) Mommer told Cutt that all XM assets will be
expropriated on June 25. As of June 26, XM will not have any
assets in Venezuela. XM will conduct all future negotiations
on compensation on that basis. In addition, XM will exit
Venezuela as soon as possible.


11. (C) According to Cutt, XM does not intend to file for
arbitration immediately. In addition, crude oil will
continue to be shipped from Cerro Negro to the Chalmette
refinery under existing supply contracts. XM plans to enter
into settlement negotiations with the BRV while crude
supplies continue to be shipped to Chalmette. Cutt said he
was personally pessimistic that XM would reach a settlement
agreement with the BRV. He told the Ambassador that the two
sides were billions of dollars apart. Cutt add that it will
take six months for XM to "debrand" its downstream assets
following their sale last week. We believe that he was
referring to the signage at the service stations and the
branding of certain lubricants.


12. (C) Cutt told the Ambassador that he would meet with all
XM employees at 3:00 PM on June 25 to inform them that XM was
shutting down operations in Venezuela completely. Remaining
expat employees will depart Venezuela and Venezuelan staff
will be given separation packages. Cutt will depart
Venezuela on or before July 3. All future negotiatons
between the BRV and XM will be carried out by XM employees
who will fly into Caracas for meetings and work out of hotels.

--------------
PETROCANADA
--------------

13. (C) Cutt stated it was his understanding that
Petrocanada, XM's partner in La Ceiba, has reached a
settlement with the BRV and will be exiting Venezuela.
Petrocanada holds a 50% stake in La Ceiba. Cutt did not
provide details on the settlement. Ramirez stated during the
settlement that the BRV had reached agreement with
Petrocanada on compensation.

--------------
CONOCOPHILLIPS
--------------

14. (C) Roy Lyons (strictly protect throughout),president of
CP Venezuela, told Petatt on June 25 that CP would not sign
the MOU and conversion contract. He stated CP would continue
negotiations with the BRV on the subject of compensation. He
added the Petrozuata and Hamaca strategic associations would
continue supplying crude oil to U.S. refineries under
existing supply contracts. Lyons stated he was leaving
Venezuela on vacation for 10 days. In a previous
conversation with Petatt, Lyons stated CP planned on having
all of its expat employees out of the country on the date of
the signing ceremony.


15. (C) NOTE: ConocoPhillips is the largest foreign investor

CARACAS 00001281 004 OF 004


in Venezuela. It held a 50.1% stake in the Petrozuata
strategic association and a 40% stake in the Hamaca strategic
association. In addition, it held a 32.5% stake in the Golfo
de Paria Oeste (Corocoro) profit sharing agreement field and
a 37.5% stake in the Golfo de Paria Este profit sharing
agreement field. CP also had a 40% stake in Block 2 of the
Plataforma Deltana gas field. Although gas fields are not
subject to the forced migration to a PDVSA-controlled joint
venture, we are assuming that CP is also exiting that
investment as well based on Lyons' previous statements.
According to Bloomburg, CP's Venezuelan operations accounted
for approximately 10% of the company's reserves. END NOTE

--------------
COMMENT
--------------

16. (C) Both XM and CP have stated for weeks that they
thought it was highly unlikely that they would migrate their
respective projects (Reftel B). Their departure raises a
number of questions regarding outstanding bonds, future oil
shipments to the States, and the BRV's ability to maintain
production levels in the Faja over the medium to long term.
Post will continue to monitor these issues as well as the
actual formation of the new joint ventures by the remaining
players.
BROWNFIELD